Stress and scenario testing are important risk assessment tools. They also provide useful ways to prepare in advance for adverse scenarios so that management doesn’t have to create everything from first principles when something similar occurs.

But trying to imagine scenarios, particularly very severe scenarios, isn’t straightforward. We don’t have many examples of very extreme events.

Some insurers will dream up scenarios from scratch. It’s also common to refer to prior events and run the current business through those dark days. The Global Financial Crisis is a favourite – how would our business manage under credit spread spikes, drying up of liquidity, equity fall markets, higher lapses, lower sales, higher retrenchment claims, higher individual and corporate defaults, switches of funds out of equities, early withdrawals and surrenders and increased call centre volumes?

This is a rant about people who are wrong on the internet. Also, why Huffington Post is a platform for big bad wolves. And why the asymmetric information and importance of financial advice means it’s not okay. Maybe this is just part of Cunningham’s Law.

Also, another numbered article by the same author “5 Viable Uses For A Reverse Mortgage”. No, I’m deliberately not linking. Then, without irony, another article, “The Death Of Click Bait Is Finally Here”.

Okay, but back to the actual topic. The first sentence in the article:

The simplest alternatives to life insurance include investing money and or saving it. If you are able to set aside enough funds each year, you can very well never have to worry about holding a life insurance policy.

So, in other words, a smart alternative to life insurance is just not having insurance at all.

The other two “smart alternatives” are, actually, life insurance. So the sum total of smart alternatives offered are “no insurance” and “life insurance”.

Maybe it’s fitting that the author describes himself:

Lazar is pronounced in his uncanny but effective content…

uncanny: strange or mysterious, especially in an unsettling way. Check.

He gives a starting set of pros and cons, many of which are interesting. That, and the comments on his post, left me a little confused as to what was actually being proposed.

Here are my thoughts.

Actuarial exams are predictive of later success

Although there are obviously exceptions, I’ve found performance in actuarial exams to be a strong predictor of the quality of work and later career success. No system is perfect, but discarding a system that works because it has some false negatives requires more evidence on the extent of false negatives vs true positives.

I recall one of the reasons employers hire PhDs is because it proves a level of commitment and determination and focus and work ethic and (also) smarts. So too with a tough set of actuarial exams.

The exams don’t test every relevant capability that we might want from an actuary – there are a range of other requirements to become an actuary which address at least some of these.

The proposal was for removing exams, but…

Removing the exams because “some students aren’t good at taking tests” is a very different point from removing the underlying course material or the need to study and understand them. The actual time taken for the exam is negligible.

If the idea is to not bother understanding the material at an in-depth level, then I have additional concerns. But that wasn’t what was actually proposed.

The solution to “some people being bad at taking tests” is not to scrap all the study material. The solution to the problem of “the study material isn’t keeping up with demands” isn’t to scrap exams.

The material underlying the exams should not be dismissed just because it isn’t all about machine learning and CRISPR. A critical challenge in not being forced to have depth of knowledge on areas, even if the details become hazy over time, is the understanding of the boundaries of one’s knowledge and the extent to which the problems encountered already have possible solutions. There is a world of difference in understanding material at a level to pass an exam and what can be gleaned from reading an article or skimming a book.

How would an actuary know when to ask for help? Are we really sure the extent of mentoring in the actuarial profession is good enough for everyone? Better informed actuaries will better be able to critically evaluate the guidance they receive.

Should the exams actually be harder?

Incidentally, I’m generally more concerned about false positives. I’d be happy to see regularly updated exam materials that are broader and more complex and, yes, harder than current materials.

Improving actuarial education

Actuarial education has not been stagnant. Should we strive for faster change and better improvements? Should we focus more on the use of technology enablement and add additional short courses on cutting edge topics? Should the profession better understand what is predictive of later success, self-reported or otherwise?

Mortality rates are estimated anywhere between 30% and 100% without treatment. Many estimates are towards the top end of this range, 80% to 95%. Treatments are available (mostly antibiotics) and are generally effective. Mortality rate where adequate treatment is administered within 24 hours can be 11%. (Either “just 11%” or “11%!” depending on whether you’re counting up from 0% or down from 95%.)

Some markets have banned sale of insurance alongside lending

Another way to deal with the problem of competition in credit life is to simply not permit the sale of insurance at the same time as the loan. This means that more providers will have an opportunity to make the sale since the lender doesn’t have the ability to slip the product in alongside the loan.

Some problems:

Overall this will increase acquisition costs as it is extremely cost efficient to distribute along with the loan granting process.

The lender is still in the best position to follow up with an outbound sales lead in the days or weeks after the loan has been granted (unless they are prohibited from selling at all, which is another option that can be considered)

Lenders may not be prepared to lend without the protection of credit life in place

The reality remains that for some lenders, for some loans and for some credit life policies, the product acts as a source of revenue rather than a risk mitigant. Without that extra revenue, the loan might not be viable due to risks and expenses of collecting the installments.

There is a Mauritian insurer called Island Life. Best name ever for an insurance company.

I firmly believe in anthropogenic climate change. I am not an expert, but my reading has convinced me of the seriousness of the issues, the overwhelming evidence that it is humans at fault. Having young children makes me seriously concerned about our ability to remedy the mess we’re in for their sake.

Part of my very inwards focussed, selfish research was on the practical impact for where I live. Unfortunately for my cycling aspirations, this is current on the bottom slopes of Table Mountain. Fortunately for my flood risk, the same.